Car Loan Terminology
Car Loan Terminology
Sometimes in the course of applying for a car loan you will come across words, phrases or acronyms that you don't know the meaning of. Finance companies, banks and credit unions love to use complicated wording in their loan documents in order to protect themselves. For this reason it is vitally important that you understand fully the meaning of these documents before you sign them.
The following glossary contains the definitions of all abbreviations and terminology that you will come across when applying for a new or used car loan.
| AAPR | AAPR stands for 'Annualised Average Percentage Rate' and is used for comparing the true rate of the loan, because it is a calculation of the approximate total cost of the loan including upfront fees, honeymoon rates, ongoing fees, different compounding periods and other factors. |
| Additional Repayment | Extra money that is paid into the loan over and above the minimum prescribed repayments. |
| Application Fee | Fees charged to cover or partially cover the lender's internal costs of setting up a loan approval for a home buyer. |
| Appreciation | The increase in value of an asset over time. |
| Arrears | When a repayment amount is missed and becomes overdue. |
| Asset | A tangible item that you own. |
| Bank Cheque | A cheque that is drawn from a specific bank and is treated as good as cash. |
| Bankruptcy | When someone who owes money has their finances placed into the hands of a receiver because they cannot repay their debts. |
| Compound interest | Interest that is calulated on both the original principal amount and also the accumulated interest from previous days/months. |
| Consumer Credit Insurance | An Insurance policy that covers the debtor ability to make repayments in the event of the debtor's sickness, injury, disability, death or unemployment. |
| Contract | A signed document that is a legally enforceable agreement between individuals or entities. |
| Countersigned | Additional signature that guarantees the validity of a document. |
| Cover Note | A note of temporary insurance that is issed before the implementation of the actual policy. |
| Credit Limit | The maximum amount of money that a borrower can use at any one time. |
| Depreciation | The decrease in the value of an asset over time. |
| Daily Interest | Interest calculated on a daily basis, therefore it varies according to the account balance on each day. |
| Debit | A transaction on an account that represents a withdrawal from the account. |
| Debtor | A person or company who owes money to someone else. |
| Default | Failure to meet your debt repayment obligation on the due date. |
| Deposit | An amount of money that is paid by the buyer at the time of purchase, normally given as a % of the total purchase price. |
| Disposable Income | Regarded as income that is left over after all known expenses have been taken into account (eg: mortgage payments, bills, insurances, etc). |
| Equity | The actual amount of an asset that you actually own after taking into account the loan amount outstanding. |
| Establishment Fee | Fees that are charged to set up a new loan. |
| Fixed Interest | An interest rate that is set and cannot change for an agreed period of time. |
| Garnishee | When money is legally diverted directly from someone's wages in order to pay a debt to someone else. Usually applied by the courts to force payment of money that is owed. |
| Interest Only Loan | A loan where you only make repayments of the interest amount during the term and the principal remains the same. |
| Introductory Loan | A loan that is offered to new borrowers at a reduced rate for a short introductory period (usually not longer than 12 months). |
| Liability | An amount that you owe to a lender or another person. |
| LVR | Anacronym meaning 'Loan to Value Ratio'. It is the ratio of the amount loaned relative to the valuation of the asset (always given in terms of a percentage). |
| Maturity | The date when a loan finishes and the debt must be paid in full. |
| Ombudsman | The Australian Banking Industry Ombudsman is a government agency that provides a place where customers can make complaints about finance companies and have the complaint dealt with independently. |
| Ongoing Fee | Any loan fee that is charged regularly over the life of a loan. |
| Principal | The initial amount that was borrowed and must be paid back over the course of the loan. |
| Redraw Facility | A loan facility where borrowers are allowed to make additional repayments and then, when needed, access these extra funds by making a withrawal from the loan account. Some facilities will have fees for each withdrawal or a limitation on the minimum amount that you can redraw. |
| Refinancing | To borrow money from the same or another financial institution and use those funds to pay out an existing loan. |
| Security | An asset that the lender uses to guarantee the loan until such time as the borrowed amount is repaid in full. |
| Settlement Date | The date on which the loan begins, the finances are settled and the new owner takes possession of the asset. |
| Term | The length or duration of the car loan. |
| Transaction Fee | A fee that is charge for each and every transactions that you make (ie: withdrawal, transfer & deposit). |
| Unregulated | A loan contract, mortgage, guarantee or financial document where the Consumer Credit Code does not apply. |
| Valuer | A professionally qualified person who's job is to estimate the value of specific asset. |
| Valuation | Estimate of the value of a asset being used as security for a loan. |
| Variable Interest Rate | An interest rate that will vary over time accordance with the rates in the broader economy. |
We hope that you appreciate and are able to make the most of the Free definitions for some of the Car Loan Terminology that is used in Australia. At Australian Loans we pride ourselves on providing accurate and helpful information about loans for cars, so if there is anything that you think is unclear of needs to be added then please let us know by filling out the form below.
Leave a Reply